A loan against property is a secured credit option extended by reputed housing finance companies or NBFCs against a residential or commercial property. Since these loans require borrowers to pledge collateral, they are usually offered at a lower interest rate than unsecured options and are disbursed faster.
Whether they are salaried or self-employed in a professional set up, any individual with a pre-owned property is eligible to avail of this credit. The sanctioned advance is much higher than the amount offered through other loans. The demand for LAP is rising among individuals for three primary reasons –
- After availing of the loan amount, the applicant can still occupy his/her property.
- It is less expensive than several unsecured loan options.
- The credit amount disbursed under a loan against property does not come with any end-use restriction and can be utilised to meet medical expenses, setting up a business, for children’s higher education, etc.
This type of loan is extremely viable for both salaried and self-employed individuals. Self-employed individuals seeking funds to set up their own business can avail of this loan type. The funds available against low loan against property interest rate reduces the repayment burden.
If a borrower requires substantial funding but wants an alternative to selling his/her property, this type of credit is ideal. Nonetheless, to avail maximum funds from this type of financing, borrowers must consider some essential factors
Essential aspects to remember before choosing a LAP
A loan against property helps a borrower to cope with emergency fund requirements. While these are the basics of this type of loan, there are other important factors that one should keep in mind before applying for it –
LTV ratio
This type of credit is provided against collateral, usually a constructed or residential/commercial property. Before deciding your eligibility to sanction the credit, financial lenders will evaluate the property’s present market value. Thereafter, lenders will provide up to 50-60% of its market value as credits.
Loan Against property Tax benefit
Unlike other loans, there is no loan against property tax benefits. Nonetheless, if a borrower utilises the amount availed to purchase a property, fund education, or prove that the amount is to fulfil business requirements, he/she will be eligible to avail exemptions.
Loan tenor and interest rate
Most financial institutions offer a flexible repayment tenor of up to 15-20 years under this advance. Opting for an extended tenor makes lowers the EMI payable. This credit, however, follows a compounding interest calculation, so opting for a higher tenor will lead to higher interest outgo in the long run.
Like the current home loan interest rate, the interest rate of LAP can vary for lenders depending on several factors including, tenor, credit history, income, and policies of financial lenders. Hence, before choosing this type of credit, individuals must conduct thorough research regarding different financial lenders in the market and compare interest rates.
Loan against property prepayment charges
According to RBI guidelines, financial lenders cannot charge prepayment penalty on loan against property availed against a floating interest rate. However, lenders can levy charges on prepaying a LAP against a fixed interest rate. Hence, consider opting for a floating interest rate over a fixed one to enjoy the flexibility of prepaying without penalties.
Apart from these, individuals can also enjoy pre-approved offers extended by reputed housing finance companies to simplify the loan application process. These exciting offers can be availed on loan against property, home loans, etc. Borrowers can check their own pre-approved offer by submitting their name and contact information.
Hence, a loan against property has always been a handy financial option for borrowers who own residential property. By keeping the above-mentioned factors in consideration, eligible applicants can avail of the loan without hassle.
